Building society and frustrated deposit savers are being tempted into investing their life savings into risky and often complicated stock market investments promising high returns. I have a simple rule when it comes to investing. If I can’t understand how the investment works within 5 minutes, I leave it well alone. If I don’t understand an investment, in my mind that’s a pure gamble.
Billions have been invested into these complex investments, which are often sold by the banks and building societies. Fewer and fewer financial advisers are including these types of investments in their client recommendations.
Due to the apparent security and high returns offered by these investments cautious savers are increasingly being attracted to them. Often they have become disappointed by the low interest rates offered by straight forward deposit investments. For some the attraction is too tempting as on the surface they appear to offer protection from the volatility of traditional investments where there is a risk that the value may fall.
These investments order modafinil best price, known as Structured Products are often linked to a Stock Markets or a number of Stock Markets. The problem is though, if the Stock Market index fails to reach its target level, you usually don’t get any returns on your investment. And in some cases if the Stock Market Index performs badly enough, you can start to lose money as well.
But the real problem is that many of these types of investments are not protected by the Financial Services Compensation Scheme if the product provider fails.
We should all be concerned as the Financial Services Authority has already issued concerns about these types of investments and the amounts of money being invested into them. This is quite a big deal as the FSA rarely steps in and criticises investment products as it’s their role to regulate financial advice and not products.
Structured Products are also very complicated to understand. They use complex investments instruments called financial derivatives to try to give a guaranteed return linked to a stock market, after a set period of time, anything up to 6 or 7 years. But they are not invested in real shares. They are in effect a bets on the performance of the chosen stock market.
Often some of the money invested is held on deposit by a third party company. Back in 2008 thousands of investors lost their investment when investment bank Lehman Brothers went bust. Many investors in Structured Products did not realize that their money was in fact held on deposit with Lehman’s.
To add insult to injury in 2009 another company called Keydata, which sold products through branches of Norwich & Peterborough Building Society, failed, leaving many investors seriously out of pocket. For traditional Deposit investors, they are protected up to £85,000 from the Financial Services Compensation Scheme (FSCS), if the company fails. What’s very worrying from an investor point of view is that more than 200 Structured Products have been launched so far this year.
Latest figures from the Financial Ombudsman Service show that complaints about structured products are rising considerably. The percentage of cases found in favour of the consumer has increased considerably. This simple statistic says it all – the ombudsman upheld 96% of cases for consumers.
Our parting advice – If you don’t understand what you are investing in and how it works, don’t invest.
